Bankruptcy Law and Debt Relief Solutions of Chapter 7 or Chapter 13
The names Chapter 7 and Chapter 13 come from the sections of the United States Code Title 11 where the law is found regarding these bankruptcy methods… you guessed it… under Chapter 7 and 13. The main difference between these two bankruptcy relief sections is that Chapter 7, also known as liquidation, allows debtors to discharge debt without payments. Chapter 13, on the other hand, is a 3 to 5 year repayment plan.
Chapter 7
Chapter 7 is usually cheaper, quicker, and easier hence it is often the preferred bankruptcy method. A typical Chapter 7 case takes about 90 days. Debtor(s) must disclose all income, assets, and debts. Exempted assets (each state has their own exemption list) can be kept by the debtor. Any contracts and secured debt can be assumed and reaffirmed as long as the debtor is current on payments or if not current it is possible to negotiate with creditors by obtaining a loan modification or redeeming the loan for fair market value of the collateral.
Changes in 2005 to the Bankruptcy Code force some debtors with income into Chapter 13 and there are some circumstances under which a debtor may actually prefer a Chapter 13 repayment plan.
Chapter 13
One major benefit of Chapter 13 is that it allows debtors facing foreclosure and/or car repossession to keep such property even though they are behind on payments, provided that they can afford to catch up on missed payments over the life of the repayment plan. Chapter 7 offers no such assistance and although filing of the petition temporarily stays the secured creditor (mortgages and car loans) on their collections efforts, these creditors may and do pursue remedies under their collateral rights.
A debtor with more than one mortgage on a primary residence where the property’s value is less than what is owed on the first mortgage could benefit greatly through a “lien stripping” motion under Chapter 13. The debtor can claim the second mortgage as unsecured debt and discharge it along with other unsecured debt, like credit cards. This debt may be repaid to some extent depending on the payment plan, however balances owed at the completion of the repayment plan are discharged.
When majority of debt is non-dischargeable: like recent tax obligations, alimony/child support, student loans, Chapter 13 offers the opportunity to repay this debt through a plan. Some debts are only dischargeable under Chapter 13.
Kathryn U. Tokarska, Esq. is admitted to practice in State of California. Graduate of California Western School of Law in San Diego, California, Ms. Tokarska concentrated her legal studies in area of Bankruptcy, Estate Planning, Taxation, Securities Regulations, and Real Estate Finance. She has over fourteen years of experience working for major financial investment institutions, offering financial planning services, investment products, wealth building and preservation strategies. Ms. Tokarska holds a Financial Paraplanner certificate, was a licensed stockbroker, and is currently enrolled in an LL.M. in Bankruptcy/Finance at Thomas Jefferson School of Law.
For assistance, contact Tokarska Law Center online, by Emailing Us, or by phone (619) 285-1992. We are a FEDERAL DEBT RELIEF AGENCY. We help people file for Bankruptcy Protection under the Federal and State Laws.